AngelCentral Learning Forum: Startup Investing During & Post COVID-19

In the past few years, venture capital and private equity investments within Southeast Asia have risen to record levels as SEA-based startups scaled new heights year after year. In 2019, it was reported that South-East Asia’s (SEA) internet economy is worth US$100 billion, and will triple to US$300 billion by 2025.

But then COVID-19 struck disrupting lives and changing many economic assumptions. Many governments have mandated strict containment measures since the first quarter this year, and these measures have very direct and immediate drastic consequences to businesses across the globe. Sequoia sent a rare “warning” to their portfolio companies and Softbank has also emphasized cash flow and breakeven to their biggest portfolio startups. We are now witnessing the travel, hospitality industry and some of its adjacent industries grind to a halt. Yet, at the same time, the S&P500 seems to tell a V-shape recovery story funded by cheap central bank liquidity.

Hear from the panel on their collective take on what is expected to happen for major ASEAN economies and verticals where their portfolio companies operate. Understand if there is a revaluation happening across the various stages of startups and hear their prognosis for the overall ecosystem focusing on founders, talent, markets, and exits. Check it out in the video!

Transcript of webinar

0:00

Shao-Ning: A very good afternoon. Today, we are really happy to have four very genuine panel speakers to join us – Paul, Binh, Xelia and Andrew. I hope we will have really, really interesting conversations today. I’ve preempted the panelists on the questions that the attendees have asked to the panel during RSVP. We would really like to hear from the key ecosystem players to share with us insights. But before we do that, let’s spend about 3 to 4 minutes per person to share on your background and your views on what the Southeast Asia ecosystem is going to be like 2nd half of 2020, going into 2021, and specifically from your own geography, where do you think things are going to be? One of the questions from the attendees is – Do you actually expect a lot of startups to go under?

1:55

B. Paul Santos: Good afternoon, everyone. My name is Paul Santos. I’m a managing partner for Wavemaker, we are early stage investors that invest primarily in the seed stage across Southeast Asia and most of our investments are in enterprise (B2B focused) and deep tech companies. We’ve done over 120 investments in the region since about 2012. And more than 110, I would say are in B2B and deep tech. We are in the process of closing our 3rd fund. Our 2nd fund was $66.5 mil and our 3rd fund we’re targeting $100 mil. So I guess the first question is what is our outlook, is it? or what did you want me to focus on?

3:11

Shao-Ning: Your outlook for the second half of 2020 and 2021. Do you think there’s going to be any going under surprises? Not particularly within your portfolio, but generally, how do you envisage the whole Southeast Asia ecosystem? Plus maybe a bit more on the Philippines and Singapore side that you are very active in? Personal or fund, it’s up to you.

3:40

B. Paul Santos: We’re seed stage investors and in the spirit of keeping it real, when you’re investing at the seed stage, there are too many unknowns. You have a team, you have the initial opportunity they’re pursuing, the initial version of the solution and you know, a lot of hopes and dreams. And so in normal times that’s already difficult to forecast. When you add another layer of unknowns, thanks to COVID, you just make it much more difficult. Under normal times, I often say, my crystal ball has no batteries. I can’t pretend to know and so the way we cope with is basically stress testing assumptions. You can be pragmatic about how you’re going to build your business and your outlook. What I’ve seen across our portfolio, really depends on where you’re standing right. Where in the world you are, what business you’re in, what your model is, who your customers are. It will change drastically and now I know we’re in this webinar to gleam learnings. So, here’s a couple of simple principles that I would see that will sort of impact, I think the rest of the year.

The first is, what I broadly call it small, medium and large. There are small companies that just raised money, large companies that are, you know, in the hundreds of millions, if not billions in valuation, and many in between which are the medium. We like to see our portfolio companies have about an 18 months runway if possible and so all of the companies that we just invested in or just recently got invested in are at their seed stage and they’re managing their burn. They should have a 12 months runway from here, and that’s always a good thing as they’ll have time to figure things out. The larger ones, guys like Zilingo, they’ll have large rounds already with large sponsors behind them and business models where they can actually have an option to get to profitability. They will have sort of a different view of the world as well. It’s the medium guys that probably will be the ones facing the most challenge. If you think about venture capital or investing, by nature, you would want to see rapid growth, and that’s the portion that could be under threat right now. Among the medium guys, you have to decide, do you cut your cost and scale back your growth? Do you take the risk and try to, you know, hope that your money lasts at least until the market comes back? There are decisions in front of you and even within the medium, there are the unlucky ones.

There will be dips, like I had one portfolio company that had $2-3 million worth of revenue last year, and was in the process of closing a Series B. The lead investor was a corporate VC that decided to put the pause on their investment and then the whole round fell apart. Chances are, this thing will be a fire sale. Why? Because nobody wants to move right? And then you will have lucky ones and we can talk about more luck, but you know, where I have one company that does sort of help with restaurants, generating off-premise revenue. Prior to COVID, they’re doing about $15,000 a day in GMV. After the lockdown, they’ve hit $1.2 million in a day as an example of just extremes. It’s very hard to generalise and it really depends on where you stand. But if there’s one last principle I’d leave out, I think this is a time where crisis like this trigger a flight to quality. In the short term, you have pressure because some investors will move to the sidelines. Your business model will be stress tested, and those that survive and those that thrive, there will be fewer of them coming out. Money won’t stay on the sidelines forever, so those that make it through and for the few that shine, they will be best positioned to raise money, to win the best employees and to win the best customers. It’s not easy, but I think this will be a time where your quality will be measured, and you will have the opportunity to show it. That’s how we’re seeing it.

Now, last part around the Philippines. From a macro standpoint, I’m just so grateful thatI’m here in Singapore. The government is managing things here versus the way things are managed there, it’s night and day. Everybody can estimate how many people have gotten the disease, but it’s also a function of how many tests are run and if you’re never able to run the tests, how will you know what the actual number is? As I speak with friends and family over there and there’s certainly a lot of uncertainty and then there’s a lot of fear. But if anything, at least in the Philippines, a resilient country, people will figure things out, find ways to bounce back. It might not be an easy exercise, but you’ll have to do it. Here in Singapore, people are quite comfortable and people trust the government and the government seems to be doing its job. I’m really looking forward to 1st June, like you know, Shao-Ning was teasing me earlier; yesterday was the first day they had the barber shops open so I went out there and got my $15 barber cut and avoided another bad hair month.

10:35

Shao-Ning: Because in Singapore even the minister was reminding everybody, please do not rush out to the barbers. Yesterday was the first day right?

10:46

B. Paul Santos: I wasn’t listening.

10:50

Shao-Ning: Thanks, Paul. The message I’m hearing loud and clear is survive and get all this then you know, only the heroes can survive.

11:01

B. Paul Santos: I mean, you know, the mantra we have jokingly told our portfolio – survival is the new growth.

11:07

Shao-Ning: next can we hear from Xelia?

11:18

Xelia Tong: Paul, you are lucky. My husband’s not so lucky. He still can’t go to the barber and I have to be the barber. I’ve twice cut his hair and the second time, I was a lot better than the first. We shaved off everything on the first one because it just went wrong. Just a bit of introduction. I’m one of the managing partners for ScaleUp Malaysia. We are an accelerator that was formed in October 2019. We launched our first cohort in October 2019. We are currently still in our first cohort. We have finalised on 10 companies that we will actually invest in.

Slightly different from other accelerators within the country, we don’t look at early stage startups, we look at scale up companies, basically companies which already have a product or a service in place, and they also have positive tractions going on for them. We would like it to be very much tech focused but our mantra in investment has not changed and will not change even with the current COVID environment is that we focus on basically investing into companies and helping companies which actually have strong business fundamentals. Even from day one, as we are selecting our companies, we need to ensure that they have those fundamentals in place. They have a right business model. You have a team that is resilient and not so much of growing for the sake of growing but looking on the path to profitability. So those are our investment thesis in terms of selecting companies to basically back up.

We have done a selection at the end of April, and are currently running due diligence on the companies and we hope to conclude everything by the end of this month. Essentially, it was during MCO where we had to select our companies and it was a challenge for us to get our investment panel to be conducted online but we did it and it was actually quite smooth. So, right before going to the Investment Committee, we had sessions to basically train our companies on how they can pitch effectively online, like you know, how you can use your hand to do certain movements, how you supposed to set up your laptop, ensure that, you have got battery there and stuff like that. We did preparation of all of those things so that the Investment Committee will have no issues with listening to them. It was quite an experience and it was kind of fun for everybody.

We are looking into going into the second cohort. How we work is that ScaleUp Malaysia actually looks at investing into five cohorts of 10 companies over the next 3 years and for every cohort, we will have investors that we will have to raise from. We have raised the first round of $3 million of which, every company that we invest in will get 200,000 ringgit from us at a fixed valuation and then subsequent cohorts will also be the same. We are in talks with certain funders for the second cohort and the third cohort as well.

On the question in terms of the startup ecosystem here, when the entire lockdown happens, Magic, one of the agencies here that actually looks into the education and schooling part of the ecosystem in Malaysia, did a survey. The numbers show that at least 40% of our start-ups will die as they won’t have enough cash flow to last them, even for two months. That was actually in March I believe, so, probably those numbers would have been realised. We may have a lot of startups which have closed shops. Not just the startups but every other business are also affected, F&B and all but at the same time, what we see on the investment side of things is that the retail investors are actually going on to looking at alternative funding. Nobody’s going to look at real estate and stuff like that, businesses are talking about closing down the office because it seems like working from home is very effective; They don’t need to pay rental and stuff like that. Property fund which is usually the class of assets that people invest into, will probably be very quiet for a long while.

The retail investors are now looking at the equity crowdfunding platform, as well as the P2P side . So I was just looking at the numbers before this and in the last three months from January to March, on the ECF platform itself, 12 million ringgit was raised for 9 of the startup companies and just in the month of April, on the largest equity crowdfunding platform in Malaysia, pitchIN. Two companies closed 7 million ringgit. The investors that actually invest are retail investors, and not the sophisticated investors. More than 50% are the retail investors and so is on the positive side of things. Of course then we have the ones that you know, like Paul said, if you can’t survive, you didn’t build the runway proper, those would be the one that have wrapped up already. These are the happenings on the Malaysia front currently

17:25

Shao-Ning: That’s actually a very interesting statistic. Thank you for sharing. Next can we hear from Binh please. Can you share a little bit more on the ground because I was asking halfway, I was reading on the GDP forecast within Southeast Asia, Vietnam is the only bright spot. The forecast is plus 2% for GDP growth for 2020, the rest of us are all negative.

18:06

Binh Tran: It’s been 25 days, consecutive days, without a local transmission. There’s 288 cases in Vietnam, zero deaths. They’re trying to keep one British pilot alive. He’s getting a lung transplant. They don’t want to be that one death. The government has been doing everything they can to keep that one guy alive, lucky him. The country went through lockdown from April 1 to 22nd. We’ve largely been open for business except for clubs and karaoke bars. It feels very good here because it’s really about the community spread that you’re afraid of and if people are flying in and they’re being quarantined, you feel safe. Coincidentally, I lived in San Francisco until January 18, I moved my family and myself here on the 19th.

Shao-Ning, thank you for having me. I appreciate everyone for joining us in this webinar if you’re on. I’m the general partner for 500 Startups Vietnam. We’re a seed stage fund that invest in companies with a Vietnam connection. We write small checks $100,000-$200,000 and we currently have a portfolio of over 60 companies.

Prior to being an investor, I spent most of my life in operations as a software engineer. My last company, I started 4 months before the global financial crisis, so I have some experience with downturns. Our seed round back then took 2 years and we had 40 angels in our seed round back in 2010 as we’re taking money anywhere we could. You can imagine what Series A closing looked like, we had to herd cats like nobody’s business. But I feel that the downturn with COVID is very different from the global financial crisis and it’s definitely something that I think our founders are seeing differently as well.

From a portfolio standpoint, we’ve had a large number of companies. We’ve had to do some discretionary markdowns, but there’s been some bright spots. One of our companies closed a round a few weeks ago. There are certain categories that stand out but yes, for most companies in our portfolio, it’s really about survival.

Here in Vietnam, I think government confidence is an all time high. There’s been a lot of unemployment and it’s going to take time to rebuild. There’s going to be a little bit of a depressed consumer demand for some time as people need income and credit to be able to spend and businesses need to rehire, so that’s going to take some time. I do think there’s got to be an increase in startups in Vietnam as entrepreneurship is sometimes born out of necessity. You might have a software engineer laid off from a developer shop. He can’t find any more work, that idea he was cooking in back of his mind, you know, last week, last month; he’s building it now. So, I’m expecting an increase in startups.

I am kind of excited about what’s good, obviously not excited about what’s going on and what’s happening to people’s lives right now and the turmoil it’s causing, but I’m excited as an investor for the opportunities coming in 2021, 2022 to 2023.

23:02

Shao-Ning: Will do, thank you. Next can we have Andrew?

23:15

Andrew Vranjes: Hi everyone, thanks for joining, my name is Andrew, I look after the startup ecosystem team at Amazon Web Services. We have a team of people based in most countries in Southeast Asia, most of the team either ex-founders, or people who have come out of investment professional roles. Hopefully a few of you are familiar with AWS. We’ve been working with startups, you know, for quite some time now. What we’re seeing in the market is very much aligned to what the other panellists are saying. We probably have a little bit different view compared to investors as we’re on this partner-supplier kind of view of things.

We are seeing quite a few startups do well and there won’t be any major surprises here. They’re very logical things as people are homebound, you know, things around gaming and entertainment, we’re seeing large spikes and usage. But some of this obviously, caught some of these startups by surprise.What we’re trying to do is quickly scramble and help them actually deal with this kind of increase in usage and some really practical things around education as well. We spend quite a bit of time with some of the edgy tech startups including a few in Vietnam. I think in that middle piece, the ones that seemed fairly stable from our perspective is definitely on the B2B side, especially B2B and enterprise where they’ve got larger contracts, maybe they’re not progressing their sales pipeline any further at the moment, but they’ve got large customers, maybe FSSI, etc and, you know, they’re very much linked to the very core mission critical software focused capabilities.

There’s no surprise that we are seeing startups in travel, you know, non-discretionary leisure being very badly hit. We’re also scrambling there and the message that we have with people is look, clouds are a great way to scale your startup, but also, let’s not forget clouds is a great way to scale down, unlike physical infrastructure where you’ve kind of bought the asset, to turn stuff off if you already know it is down like we want to talk to all founders and CTOs and make sure that that’s getting right size and cost optimised.

So, a lot of CTOs get this but we have also found a couple of CTOs that have forgotten where the off switches are, so we’re helping them to find that switch again as it’s really important. We want all these startups to survive. That’s how we’re seeing the market. We’re here to support founders in these tough times and spending a lot of time with customers, summing it up either, you know, their business is scaled up and helping them with that new normal, or helping them right size for kind of where the businesses are right now as well.

26:55

Shao-Ning: Thanks, Andrew. Just a very quick summary from what I’m hearing from everyone, actually there are bright spots everywhere and it’s very much a survival will take it all when the market comes back. What the message we are all sending out to the founders is that lean is not mean. It’s not wrong but the thing is, if you don’t keep it lean, you don’t have a tomorrow for you to continue fighting the show, but there are definitely bright spots for investors to be looking in. Just from a show of hand on the screen, do you actually see valuations drop? Because in APAC, we actually saw that the founders were sharing a 10-15% drop from between the asking and the offer. But do you see that here, in a more than 20% sense?

So everybody does. Founders actually are also realistic about the situation. So I actually asked for the question. “Do you have a question for the panel?” in the registration form and one of the questions that stood out to me was – The founders started funding conversations before the COVID, halfway before the COVID started, and then they realised some of the conversations stalled and they were asking, what should they do? Should they move on, or should they negotiate? So what’s your take on it and if you were in the investors shoes, what would you advise them?

28:54

B. Paul Santos: Let me just clarify. You are talking to investors and with documents signed, and then they’re re-negotiating on the documents? Or they just basically stopped returning calls. What was the context? Because if it’s the first, it’s kind of not cool as if you’ve signed something, you gotta honour it even though we’ve seen people not honoured signed term sheets before.

If it’s the latter, where, you know, they’re just not returning calls, it’s probably a sign that they’re not that interested right now and you just take it as a sign that if an investor wants to do something, they’ll let you know and if they tell you they need more time, then they need more time. If you want to pressure them to a decision and they say, okay, if you pressure me to decide now then no. Then you decide to do that. Sometimes, you know, we can’t help but be optimistic. We want to raise money, and we think people should see what we see. But other times people don’t see what you see and life goes on right. I think you’re better served accepting reality, if I were to just sort of put one principle there. Regardless of whether it’s a customer, an investor, or somebody you want to bring on, just accept reality if they’re not responsive, they are probably no interest anymore.

30:37

Binh Tran: I think it might be a little bit more nuanced than that. I think most investors have been very busy the last couple months, just haven’t had enough time looking at deals. For example, I’ve spent a large amount of time going through portfolios or communication with LPs. Like most other investors, we’ve had to just take a little bit of a pause. And so I’ve been telling some of my companies that are positively affected by COVID just to hold off, come back within a couple weeks and check back in. Companies that aren’t positively affected by COVID, and I think most companies are, you know, talking to new investors. Fundraising is going to be hard and unless you have a really strong story, you should probably postpone that fundraise.

31:50

B. Paul Santos: Exactly and that’s why if they’re not replying, then they have other more important things to do right now. You know, figure something out, as you can’t wait forever. Work on your Plan B.

32:04

Shao-Ning: Before COVID-19, I would have told the founders that it is like the girl who doesn’t return your call, she is just not interested enough so move on. But I think COVID, like what Binh said, the nuance is very different. I think everybody has a whole spectrum of things to focus on. And sometimes it’s not about you, it’s about them right. I was actually going to ask Andrew and Xelia this question. You work very closely with the founders and incubators and ecosystem supporters, sometimes we may not be directly investing, but we are like little nodes that paid forward and our message, because of this, it actually gets spread. Are there any new insights that you think as that little node you work in? Because every cohort you work with 5 to 10 companies? Is this something that you really feel that the founders should really, the incubators could help spread these messages to help the new founders or new companies to be more resistant and more resilient?

33:28

Xelia Tong: It crossed our minds as well, when we have not actually selected the companies prior to the MCO. When MCO hits, we took the decision to basically say that, hey, we got to proceed because we are investing into the companies that we are actually selecting and right now cash is king. Just like, those who say that, you’re talking to investors, investors are not returning your calls and stuff like that, but then they potentially would have sort of projected or forecasted maybe some of these funds are coming in, these are the sort of growth plans that I can put in place. If we didn’t make a decision to invest during this point of time, when we’ve been really working very closely with all of the companies over the last four or five months, then we may have what we call a missed opportunity. These companies are the ones that we spent a lot of time looking into their business, looking at where their gaps are, and how we can basically fill up those gaps from all the different partners that you know, the experiences that we all have.

Basically, it’s sort of like the bulk buying mentality thing, right? Together then you’re stronger. When we have a cohort of the 10 companies, it is also easier for us to also talk to people like Amazon Web Services (AWS). We’ve got very good support from AWS, basically giving out the credits to our companies. We’ve been able to sort of get funding agencies to sort of be able to engage with us first, in terms of coming out with the relief funds plans for the startups themselves. We feel that as an accelerator in the market, those roles are key because if you get the founder to knock on each and every one’s door asking for credits, going to the individual banks or going to the different agencies that is giving out funds on their own, then they may sort of face a lot of roadblocks. All the six partners have been in the ecosystem for a very long time. We have the ability to basically put together resources and get them the assistance when they need that. That is essentially very important for the startups now, besides being able to sort of sustain on their own. They need as much help as possible from everybody.

35:57

Andrew Vranjes: I would say something similar. Underneath that we see probably two patterns, we do see some founders in real dire straits and well we want to ask, you know, asking questions like, look, it’s time to kind of think about your supplier, and what you’re using, and you know, what you really need, and I liked your comment, lean and mean as well and really to think deeply about these things. I think that’s really important and we’re working with a lot of founders to achieve that.

Specifically with the AWS piece, there’s another set of founders that have a long runway, and they’ve got a fairly successful business, but they’ve been putting off some pretty key and important projects, because they’ve always been chasing revenue and with those founders as well, we’ve been helping them. A lot of that’s on the tech side, re-architecting security, really optimising what they are using with us as well. Some of those projects that have been nice to have, and I’ll do it tomorrow can come forward now, especially with some of the latest stage startups that they’ve got some people that have got some freer cycles as well.

We’ve been able to help a bunch of startups get to a better place on the technology side that they’ve always wanted to get to. So I think probably, two messages there: really think about what you need to survive and including, you know, using our platform. If you have projects that are value add, now maybe a good time to get them done. If you’ve got a long enough runway, this is a good time to clean up and get organised internally as well. Do all the things and there are a lot of genuine partners for startups in the ecosystem, make sure you understand, you know what they have on offer for you. We’ve worked with a lot of founders that are really good at understanding what we have to offer and get every dollar of value out of us and we work with a lot of founders that have just been quite ballsy about some of those benefits. Now’s a good time to go back and have those conversations on how can you help me.

38:23

Shao-Ning: Andrew, is that a public offer of extension of credits?

38:28

Andrew Vranjes: No, we don’t have any specific COVID related programmes. We have all the programmes that we’ve always had – activate, migration, programmes on the value add and connection side. We just encourage founders to go have a look at these programmes. We have large portfolio programmes and now’s a good time to have a look at all of those and see how they can be helpful, and a lot of them can be more helpful right now as well.

39:10

Shao-Ning: There’s quite a few questions coming up on the Q&A board. I’m going to combine the first question and the third question, basically, what’s your view on FinTech startups and MedTech startups going forward? For the FinTech question, it is more about FinTech raising capital in Thailand during this period of time, and the other question is on the future of MedTech, especially for diagnostic tools in the pathology detection fields, these questions are from our participants today.

39:50

Binh Tran: I can’t talk about Thailand but maybe talk a little bit about MedTech. It’s one of those areas that are going to be just a positive effect or silver lining, you say that COVID has had.

Prior, you know, the idea that you got in your car and went through the traffic, sat in the doctor’s office and exposing yourself to germs so you can just give you prescriptions, you find that it’s pretty stupid, right? Areas like this where you ask yourself as long term investors on what hasn’t changed. I think there’s a whole slew of areas that aren’t going to change and should not invest any differently but there are areas like telemedicine and certain areas like conferencing or remote working, that is fundamentally changed and so you do have to change your thesis around that. For those new areas that have changed, as well as just continue to look at opportunities where there might be some distressed assets or opportunities because something just a little bit more you know, immediate in terms of its effect, the valuation has gone down but we know long term people still need to travel, to eat socialise, they need to buy clothes, you need the internet. So I look at investing through that kind of two aspects; What has changed? What hasn’t? It’s helped me kind of think about opportunities.

41:45

Shao-Ning: The question is actually about everybody’s view on post COVID investments and valuations. So just now we mentioned that in the past 1 to 2 months we noticed that drop already. But do you think that coming out of Q4, even Q1, Q2 next year, do you think the depression will continue or do you think that it will come back up? Generally speaking I mean, it’s a very tricky question to answer because it’s vertical base.

42:55

B. Paul Santos: So here’s another way I think about these things. It almost doesn’t matter like what will happen 6-12 months from now, whether valuations will go up or down, etc… as long as you are you building a valuable business. Again, this whole concept of the flight quality is, if you have a business that’s valuable, a business that’s worth backing, people will want to work with you, if you don’t, then they won’t.

What happens in times like this, again, it may be a short term crunch, there’s a supply and demand and it just gets harder, because there’s lesser money in the ecosystem, more startups looking for money, then you know, supply and demand says, there’s going to be some pricing pressure. But we’ve also seen companies that were in the middle of discussions pre-COVID and they shook hands and closed the deals and there was no renegotiation because the investors coming in thought that there was enough value. Focus on just building a proper business, an attractive and scalable interesting business, is primary and then the valuations will fall where they will fall. It’s what both sides will effectively agree on and then you go on. Any valuation until your exit is a midterm mark anyway and so I wouldn’t be so focused on valuations now, as much as trying to build a good business.

44:35

Shao-Ning: That goes to one of the questions that one of the startup founders posted on the registration form is that, is it fair for VCs now to emphasise on profitability. I’m the old school investor where I care a lot more about foundations, so, when I saw that question, it just shows how much the mindset where the anchor was for the past few years. I just want to hear your views on if it is fair to ask for profitability now because of COVID-19.

45:15

Xelia Tong: We understand that COVID has hit businesses and doing business is even a little bit tougher. It goes back to the fundamentals where good investors who are partners to you, they will basically work with you in terms of the path to profitability, your business fundamentals have to be there. You are building a business where you will be sustainable, you will grow and you are not always out there trying to raise funds like all the time, which is what has been happening over the last many, many years. Essentially, it’s very important, where we go back to the fundamentals of why did you become an entrepreneur in the first place. The resilience in you, the ability for you to be able to pivot when things are not going the way you may have predicted it to be. you must have sort of the suite to do so. So even like some of the companies within our 10 right, when they first join our programmes, they could be, say addressing a certain market or certain customer segment.

When COVID hits, we are proud to be able to see why we picked this particular startup or this company to invest in. It is because the founders themselves managed to pivot and look at particular customer segment that is actually affected, change and retarget. He’s going to have a GP positive soon as in the last two, three months, his business has grown tremendously and these are the sort of businesses or the founders that you actually want to invest into. Investors are now not just looking into how cool your innovation is going to be and all but again, it goes back to whether are you investing in the right thing? Can they make it even when times are bad? Do they know how to sort of work around or they practice the “lean is mean” kind of philosophy that you mentioned earlier. They don’t expect you to, like say immediately be profitable, but you must have that mindset that you want to grow your business to be a profitable business, and that’s where we would then work with you.

47:35

Shao-Ning: Going back to the Q&A – do you observe any switch from equity to debt financing? Actually we probably need a bit more information from you and what do you mean by this? Because in seed investment, usually it’s quite common to be either through convertible note or direct equity investment so this question is not very clear. What’s your view on EdTech? Because this whole home based learning and you know, you’ve got to attend lectures through this and I think just last two days, there was this article about US Ivy League students petitioning against the US Ivy League about degrading the values of their diploma is no longer a premium but the school is still charging the premiums on their fees. So what do you think of this, the EdTech space? How does it evolve?

48:44

Binh Tran: We have a few key companies in our portfolio for EdTech and one is a company that teaches you to speak better English, and they’ve been positively affected by COVID. Their traction is quite remarkable. We have another EdTech company that depends on travel, so they help international students get into American schools and so that dependence on travel is definitely worrisome in the short term, but long term, you know, it’s really important for folks to have, go beyond just getting the education but then part of education is developing social skills, connecting with one each other and so I feel that, you know, there’s definitely areas that technology can augment and automate and improve. There’s other areas where, you know, education still is very important to have in person to build those human connections and relationships. I see on both sides, I think from a long term perspective, you know the company depends on travel. They have such a great business model, they’re going to bounce back even harder, just because universities still need to have that diversity of income. And that diversity of students especially when student visas are the easiest way to be able to go internationally post COVID.

50:30

B. Paul Santos: I hesitate to sort of use this point in time as looking at it as permanent. We’ve been through different kinds of crises before and at some point this too will pass. We don’t need to get that carried away. Of course, we take this seriously but I believe that we will find the way to beat this, whether it’s through a vaccine or some other ways, it will be there and, life will come back to normal. That’s why I was just saying, we don’t need to get carried away. You know, the line that’s often used these days is what’s the new normal. Like, what does that even mean. Possibly one of the ways to think about it is maybe there are things that you’ve been forced to try now or have been forced to do now that you didn’t want to do, or you were dragging your feet, and you were forced to do it now because of COVID and then you’ll find some of these things acceptable. You will enjoy some of these things such that even after COVID you’ll keep doing them, then maybe those are the new normal, but there will be certain things that you’re forced to do today that you absolutely don’t want to do. Once things go back to normal, you stop doing them. It’s good to be aware of what’s happening, it’s good to be prepared, but I also would caution around getting too carried away, they say that we’re doomed to this kind of life.

52:25

Shao-Ning: To add to that, before the panel started I was sharing that for now, all the AngelCentral pitches are through Zoom and before that, I was so reluctant to do this. Internally we were also having debates because some of our investors are overseas, but how do we get them involved? So we do direct video recording but video recording doesn’t allow the interaction. So we were talking about having webinars and I was so adamant against it, but Teck Moh was saying that we should do it. But then the thing is, we’re closing our first syndication that was purely from pitch to office visit to debrief, and with the investors, it was all through Zoom. It’s something that you have to accept, and it’s something that you got to go along with it. Ideally, I would like to be able to talk and chat with the founders face-to-face. So going back to another question. How do you is your due diligence done through webinars now? Can you really read the founder?

53:40

B. Paul Santos: Again like you, we’re thinking, we’re going to write our first check without ever meeting the founder face-to-face. You’ll be forced to try it and it’ll be a data point. I know just like you, like maybe now because they forced you to do this and because you’re forced to do this, you’ll be comfortable with some sort of hybrid, you’ll be comfortable with some levels of interaction face-to-face, and some levels would be Zoom. I think investing would be the same. If we’re locked down for a year and we need to deploy capital, then we’ll be forced to do it. It’s not what we want to do, but we’ll be forced to and then we decide when things go normal, what do we want to keep. I might do it just once, just to try and see if we can do it properly.

54:42

Shao-Ning: so Binh, would you write a check purely over zoom calls?

54:48

Binh Tran: We’re early, pre-seed and seed investors. So I’m not looking at months of due diligence and facetime, so that I can sit on your board. I can definitely write a check over Zoom. It’s a different style of investing. That said, I am advising the companies that we’re investing to like to really be mindful of the fundraising ecosystem with what can be like in 18 to 24 months as series A and B investors, they will want to go and meet you in person and to be spending a lot of time with you. Think about at that stage at that time, are investors going to be on pause or not? And considering, an 18 month runway and trying to raise 24 months if you can. It definitely doesn’t affect me too much but I am thinking about downstream rounds.

55:55

Shao-Ning: If AI or VCs are withdrawing funds due to COVID and the hard times, what will be the sustainability of the startups if contracts are renegotiated, start-ups will be stuck and they can’t move ahead? So I think what he’s trying to ask is, if nobody’s funding me, what do I do?

56:26

Binh Tran: I think startups in general are either playing offence or defence and if you are in a position of defence, you’re setting runways so if you can’t, there’s only one answer to that and that is to potentially pivot and that’s your only offensive move.

56:48

B.Paul Santos: or close!

56:52

B.Paul Santos: The other thing about this whole startup adventure, it’s sometimes over glamorised and, people like to say, Go big or go home, and they forget that sometimes you really have to go home. This is one of the things I tell our founders, even outside COVID, is for most people, life doesn’t change if your startup dies or not. But for your stakeholders, you have to matter enough that they want you around, whether it’s your investors or your customers or your employees, right and sometimes it just doesn’t work and if it doesn’t work, there’s no shame.

The last thing you want is waste your time on an idea that that shouldn’t be funded. Money that you lose, you can make back, the time that you lose, you can never make back. This is sometimes the tough part, right? Like the reason, cliches are cliches is because they’re right sometimes. Winston Churchill said never, never never give up right? It was right but sometimes people will say you have to know when to cut your losses. This is the tough decision that the founders will have to take at some point. This is the fight, you go offence, defence, or is it time to just say, you know, it was a good run, I should just stop now and put my time onto something else. It’s not the conversation you want to have but it’s an option that you have to consider.

58:43

Shao-Ning: I think that at this juncture, a lot of startup founders, they’re stuck and I think it’s the willingness to make the hard decisions. At the end of the day, that decision has to come from you. You cannot say that because they’re not funding me and that’s why it’s their fault that my business is not going on. End of day, it’s your life, you take the call. If you still need to come up with the prototype, or you decide not to, that’s your call. Because, at the end of the day, that’s your business. If you believe by investing more of your time to build up a prototype that can bring back some of the contracts or the investors, it’s your judgement call, because it’s very difficult to give a good answer. There’s a lot of question marks around my head on what’s the situation that you’re in. We can’t give a good answer in this sense, and we don’t have crystal balls like Paul said all our crystal balls are out of battery.

So, thanks a lot everybody. I’m mindful of everyone’s time. We are at five o’clock now and I really, really thank the panel today for our very real, very genuine answers to everyone. Whether Andrew is really having the public offer, I think you have to reach out to Andrew to find out a bit further, but I hope to catch up with everybody over coffee after the sessions. And for the founders who are on the chat, If you really want to talk a bit further, under AngelCentral we actually have a one on one personal private chat with you either with myself, Teck Moh or Der Shing. You can go onto our angelcentral.co/covid19 to book the time there. The idea is actually to just provide a sounding board to prevent you from having to always have a conversation just with yourself. So having a stranger to listen to your ideas may help somewhere. Thanks a lot for your time. Take care, thank you bye.

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